A debit card is a plastic payment card, similar to a credit card, which can be used to purchase goods and services from purveyors of such goods and services (generally referred to as “merchants”). Typically, a debit card is backed by an account at an issuing bank that belongs to the user of the debit card. For a debit card transaction, funds are drawn directly from the account that backs the debit card. If the funds are not present in the account at the time of the transaction, then the issuing bank rejects the transaction. The rejection is returned to the merchant, who declines the transaction with the user.
A “prepaid debit card” is a type of debit card that is backed by an account at an issuing bank. Typically, however, the account that backs a prepaid debit card does not belong to the user of the prepaid debit card. The provider of the prepaid debit card (e.g., a merchant, bank, or the like) creates and funds the account with a specified amount of money, associates the account with the prepaid debit card, and then provides the prepaid debit card to the user. For a prepaid debit card transaction, funds are drawn directly from the account that backs the prepaid debit card.
As with a debit card, if the funds are not present in the account backing a prepaid debit card at the time of the transaction, then the issuing bank rejects the transaction. Since a provider of a prepaid debit card does not know when a user will perform a transaction, the provider must fund the account that backs the prepaid debit card at or near the time of providing the prepaid debit card to the user. This results in inefficient use of the provider's capital. Further, at the time of a transaction, the issuing bank only determines whether there are sufficient funds available in the account. No other verification is performed with respect to the transaction.